Retiring Bendigo chair calls for new rules

Robert Johanson has used his final AGM address as Bendigo and Adelaide Bank chairman to call on regulators to embrace the instability and creative destruction he says comes with increased competition.

Mr Johanson, who is retiring on Tuesday after 13 years as chairman and 31 years on the board, told the bank's annual general meeting that the major banks have a massive advantage because of capital requirements put in place in 2007.

Under these regulatory frameworks, the big four banks plus Macquarie and ING have to hold far less capital against risk exposures than other Australian financial institutions because they are accredited as a having an advanced approach to operational risk.

"I think there is no doubt that these rules around the world contributed to the explosion in leverage, credit availability and poor risk management which led to the GFC," Mr Johanson said, referring to the 2007-08 global financial crisis.

The impact of these rules has been reduced since then, and will likely be reduced further under an announced proposal by the Australian Prudential Regulation Authority (APRA), but will still be "decisive," Mr Johanson said.

Regulators have valued financial stability over competition, Mr Johanson said, but external assessments have shown that most of these risk management systems have been ineffective and even counterproductive.

"So far, the response has been to impose even more regulation, even more bureaucratic interventions," he said.

Mr Johanson said that rather than protecting the system from abuse through "hurdles and barriers to entry," regulators should make it easier for different organisations to compete on a level playing field.

But that, he said, "does require the system to accept and even encourage a degree of dynamism, of instability and creative destruction".

Mr Johanson also said that Bendigo and Adelaide was working to adapt to the digital world with its new digital bank Up, which has exceeded initial expectations by attracting 130,000 customers in the 12 months since launch, as well as its connection with the online home loan business Tic:Toc.

"But the amount of change over the next five and 10 years will be I expect more than any other time," and some of the bank's relationship won't survive, he said.

Bendigo's managing director, Marnie Baker, told the AGM that it was still a challenging time for Australian banks with increased regulatory oversight and record low interest rates.

"Recent cuts to the official cash rate and once-off tax refunds, rather than strengthening confidence in the minds of consumers and businesses, in a perverse way is having the opposite effect," Ms Baker said.

"Consumers are choosing to pay off debt rather than spend their additional funds and businesses, whilst needing funding to grow, are finding credit harder to access."

She said that 100 financial institutions are operating in Australia, but 80 per cent of deposits and loans are held amongst only four banks, which Ms Baker said was the result of an unlevel playing field that regional and smaller banks had to contend with.